–Labor Markets:Ryan Avent looks at the difference between the U.S. and U.K. labor markets. “Why lower real wages should be necessary to boost employment. In a series of papers, Guillermo Calvo, Frabizio Coricello, and Pablo Ottonello argue that the dynamic is a common symptom of post-financial-crisis recoveries. After crises banks prefer to lend to capital-rich firms, which have lots of seizable assets. The dominance of capital-intensive firms in recovery dampens labour demand, which can only be offset by a falling real cost of labour. They present data showing that post-crisis recoveries tend to be jobless in the absence of a burst of inflation, but merely “wageless” when inflation is running moderately high. That’s a reasonable story. In a recent blog post, however, I wondered whether this dynamic hadn’t been a persistent feature of rich economies since the disinflationary downturns of the early 1980s.”

–Emerging Crisis:Felix Salmon looks at writing by Paul Krugman and Dani Rodrik on the crisis in emerging markets. “Krugman, if I’m reading him right, is saying that if only US economic policy had worked better, we would have a much more vibrant economy, throwing off enormous amounts of cash which would more than make up for the taper. Employed Americans, along with fast-growing US companies, would naturally look to invest their money abroad, and the flows to emerging markets would remain healthy, thereby avoiding a crisis. Instead, we have too few employed Americans, we have overly cautious US companies, and the markets have come to the collective (and self-fulfilling) decision that the end of QE will mean the end of substantially all capital flows to emerging markets. The result is a “sudden stop” — and all sudden stops are extremely painful. Rodrik, on the other hand, says that the current crisis is the emerging markets’ own fault, for opening themselves up to fickle and volatile capital flows in the first place. Worse, whenever these economies run into difficulty, they tend to respond by becoming even more open to international capital flows. This is a story which is bound to end in tears, no matter what the Fed does. The two narratives aren’t entirely contradictory, but ultimately Rodrik’s is more important, and more correct. “

–Economics of Bitcoin:James Hamilton dives in the economics of the digital currency. “Will it keep up? The value of the liquidity services that something like Bitcoin could provide is certainly quite tangible. Bitcoin’s functionality relies on the security of the underlying cryptology, and I am no one to judge whether better algorithms might develop for hacking the code or usurping the network on which the system depends. Another detail I am unclear about is whether a peer-to-peer network can continue to be relied on to provide verification to merchants at minimal cost. Currently the system creates new Bitcoins that are credited to entities on the network who successfully solve sets of new verification problems, giving individuals an incentive to maintain and update the system of accounts as well as ensure that the number of Bitcoins grows at a fixed rate over time. But the system is set up so that the maximum number of Bitcoins could not exceed 21 million, a ceiling that we are already more than halfway toward. Could a variant of the system continue to survive after we reach peak Bitcoin? Hard to know where this is all going to lead. But one thing is clear– we have added a very interesting new chapter in the history of money.”

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